Cleveland-Cliffs Eyes Growth Amid Challenges

Cleveland-Cliffs ((CLF)) has held its Q4 earnings call. Read on for the main highlights of the call.

Cleveland-Cliffs’ recent earnings call paints a picture of a company poised for recovery and future growth, despite facing some financial hurdles. The call highlighted a stronger order book, the positive impact of tariffs, and the successful integration of a recent acquisition. However, it also acknowledged challenges such as a weak 2024 performance and increased leverage.

Improved Order Book and Lead Times

Cleveland-Cliffs has reported a significant strengthening in its order book and lead times for hot-rolled steel. Lead times have increased from three weeks to seven weeks, marking the strongest position in nearly a year. This improvement is a positive indicator of the company’s recovery trajectory.

Positive Impact of Tariffs

The introduction of a 25% tariff on steel imports is expected to bolster domestic producers, including Cleveland-Cliffs. This move aims to address unfair competition from foreign producers and is anticipated to benefit the company significantly.

Successful Stelco Integration

The acquisition of Stelco has been smoothly integrated into Cleveland-Cliffs’ operations. The transition has been seamless, with synergies of $120 million expected by the end of 2025, showcasing the strategic advantage of this acquisition.

Strong Safety Record

Cleveland-Cliffs has maintained an outstanding safety record, reporting a total reportable incident rate of 0.9 for 2024. This achievement underscores the company’s commitment to maintaining a safe working environment.

Increased Liquidity and Debt Management

The company boasts $3 billion in liquidity following the successful issuance of senior unsecured notes. This strong balance sheet position reflects Cleveland-Cliffs’ robust financial management and strategic planning.

Cost Reduction Achievements

Cleveland-Cliffs has achieved a $30 per ton reduction in unit steel costs year-over-year, with further reductions of $40 per net ton expected in 2025. This cost management strategy is crucial for enhancing profitability.

Weak Financial Performance in 2024

Despite these positive developments, Cleveland-Cliffs posted an $81 million adjusted EBITDA loss in Q4 2024. This was attributed to weaker automotive demand and low commodity pricing, highlighting the challenges faced during the year.

Idling of C6 Blast Furnace

The company idled its C6 blast furnace at Cleveland Works due to weak demand, particularly in the automotive sector. This decision reflects the company’s adaptive strategies in response to market conditions.

Low Automotive Demand

Direct shipments to the automotive sector in Q4 were the lowest since the pandemic, impacting Cleveland-Cliffs’ profitability. This trend underscores the broader challenges within the automotive industry.

Increased Leverage

Following the acquisition and cash use in Q4, Cleveland-Cliffs’ leverage has risen above the 2.5 times target on a net debt-to-EBITDA basis. This increase in leverage is a point of concern that the company aims to address.

Forward-Looking Guidance

Looking ahead, Cleveland-Cliffs CEO Lourenco Goncalves provided an optimistic outlook for 2025. The company expects continued improvement in order book and lead times, bolstered by the 25% steel import tariff. The Stelco acquisition is projected to yield $120 million in synergies, and cost reductions of $40 per ton are anticipated. With a healthy liquidity position of $3 billion, the company plans to use free cash flow for debt reduction, targeting a net debt-to-EBITDA ratio of 2.5 times.

In summary, Cleveland-Cliffs’ earnings call reflects a company on the path to recovery, with strategic moves such as tariffs and acquisitions positioning it for future growth. Despite facing financial challenges in 2024, the company remains optimistic about its prospects for 2025, with a strong focus on cost reduction and debt management.